In “Primed to Perform: How to Build the Highest Performing Cultures Through the Science of Total Motivation,” authors Neel Doshi and Lindsay McGregor discuss a concept called the Cobra Effect.

The Cobra Effect is an unintended, negative consequence that occurs as the result of a not-fully-thought-out incentive. The name is derived from an incident that occurred in India in the 1800s, which Doshi and McGregor explain:

“During the 1800s, when India was under colonial rule, the British government reportedly set out to reduce the number of cobras in the city of Delhi by paying bounties for dead cobras … A few shrewd entrepreneurs realized there was good money to be made from dead cobras. So what did those enterprising citizens do? They built cobra farms to raise more snakes. In the end, the cobra population of Delhi increased.”

According to Blair McHaney, the president of ClubWorks, the Cobra Effect can happen to any organization. Here, he discusses some recent examples of the effect in action, and how to avoid accidentally triggering it.

CS: What should health club operators know about the Cobra Effect?

BM: Let’s put it in the context of compensation. Frequently in business we use incentives to drive our objectives. Our belief is that if we put some money out there at some objective, that people will work harder toward that objective. The point that Doshi and McGregor make on compensation is sometimes the result you end up with is not the one you intended. You see it all the time. It’s when people start to create opportunities to make money, that have nothing to do with what you wanted in the first place.

CS: Have you seen the Cobra Effect in health clubs?

BM: I’ve seen this happen in health clubs many times when there’s low-base pay, heavy incentives on sales, and systems that don’t have the right checks and balances. As a result, for example, people will write contracts for members that don’t exist or set people up on contracts they don’t agree to. That’s the Cobra Effect.

Recently, what happened at Wells Fargo is a good example of the Cobra Effect outside our industry. They were just chasing the money, not the best interest of the customer.

CS: How can clubs avoid the Cobra Effect?

BM: They can do three things. One, less incentive and more base pay is helpful. Two, more team-based incentives as opposed to individual ones. And three, apply more critical thinking to the incentives. Really think through what happens if you place the biggest incentive on X objective — what are the potential things that could go wrong?

This is especially if the base pay is not enough for someone to live on. That’s a big part of it. If I’m feeling the financial pressure of base pay not being enough to live on, and then on top of that you put a big incentive out here on two-year agreements, for example, then there’s a good chance that there’s going to be some negative repercussions for the customer.

Really think incentives through and think about how your employees in particular positions will react to incentives. If you just go with the first layer of thinking that says “We want X, so we’re going to incentivize X,” and that’s all the further you’re going to think about it, you’re going to have some negative effects from it.

Any customer experience in the fitness industry starts with three main factors: plant and equipment (fixed assets), services (exercise class programming) and amenities (non-fitness based, such as a café, towel service, locker room shampoo, etc.), McHaney said. Atop those three factors is the daily operations layer of people, policies, processes, business practice, procedures and other customers.

"If the product is plant and equipment, services and amenities, [then] customer experience lives on the other side of our people, policies, processes, business practices, procedures and other customers," McHaney said. "Our customer can't utilize that product without experiencing our daily operations, and that is what we call the 'blending effect.'"

The blending effect, McHaney explained, occurs when the actual usage of the product purchased by a customer is intertwined with a company's operations.

"For us (the fitness industry), this blending effect is extremely high and is about as high as it could be for any industry except for perhaps healthcare," McHaney said. "There's a huge opportunity to utilize all of those parts of your operations to keep leveling your customer experience, to learn something new, to implement something new, execute, try again, keep moving and keep getting better at getting better."

Health clubs wanting to improve their customer experience can follow four basic strategies: see yourself as customers do, wire customers into every decision, innovate continuously at scale and drive accountability at all levels, McHaney said. He detailed those strategies in the webinar, which will be available for free on-demand viewing in the coming days.

From 36 percent to 89 percent. According to Gartner Research, 36 percent of enterprise CEOs in 2011 said customer experience is the dimension on which they are now competing. That number jumped to 89 percent in 2016.

These CEOs of major companies are saying that customer experience is the battlefield, and having a strategy to win on that battlefield is imperative. I suspect that in the next three years, the percentage of CEOs who say that customer experience is their differentiator will rise to 95 percent. But why, and why now? What is happening that providing a customer experience has become so imperative for so many companies? Haven't they always focused on customer service? Yes, they have. So when they talk about a customer experience strategy as a new competitive dimension, they are talking about embedding the customer perspective into every cell of the company and creating a unified (i.e. whole company) approach to understanding the customer.

The very nature of strategy is that it animates an organization. When you have a unifying vision and strategy and electrify it with the right customer information, your decisions will be different. That sounds simple, but it is where differentiation begins. Your decisions will be different than they would have been had you not adopted the strategy. In other words, if you have not created a unifying customer experience vision and strategy, and you have not adopted the discipline to track and manage its progress, you are getting left behind. You become the guy or gal who is in a highly competitive race but is unaware whether you are running first, last or somewhere in between.

When you consider why there is such a massive push on customer experience, you might come to the conclusion that it is because of the proliferation of social media in all its forms — Yelp, Snapchat, Facebook, Instagram. Pinterest, Google+, etc. — and that these companies want to make sure they look good. Although improving social commentary is a nice outcome, it isn't the main driver. The drivers are market share, revenue growth, same-store sales, share of wallet, margin and all of the usual suspects. In fact, I would sum up many of these companies' approaches to social media as "Be a great company on the inside, and it will show on the outside."Looking good on social media isn't a driver; it is an outcome.

What business owners are recognizing is the parity in the normal business functions among their competitive set. You better be good at marketing, finance, human resources, etc. You probably wouldn't be around if you were not good in those areas.

Moreover, all of these normal business functions are operational. This means that they have numbers and metrics that guide the day-to-day and give goals for the future. Someone at the top of the food chain takes ownership of these functions and ensures their success. This is simply the ante to being a good company.

Managing the customer experience is the ante to being a great company, and someone has to decide to make customer experience a strategic objective. That person is the CEO, president or owner in the case of many smaller companies.

Once that decision is made, aggressive action should be taken to break existing inertia. Set big goals — net promoter score (NPS) is a good one — measure and monitor all of the NPS key driver metrics on a day-to-day basis, respond to every single customer that provides feedback, get multiple people involved, establish a company-wide vision with hard edges on understanding when and how you will reach it.

The worst mistake I see is when company leaders take a tactical approach to customer experience. This usually takes the form of testing whether one's teams are willing to adopt and execute the new operational disciplines that it takes to make a strategy work. If their teams lack the interest in adopting the day-to-day disciplines, then these leaders capitulate. Strategy is not a trial balloon. Strategy is not decided at the front line. It is executed at the front line.

If you are a CEO, president or owner, if you own one club or 100 clubs,you are the strategist, and it is you who will determine whether your strategy gets adopted or fizzles.

There is a race going on. We are all in it, and there is a tremendous opportunity to differentiate your company. We estimate that only 2 to 3 percent of fitness companies are ramped up in their customer experience management discipline.

BIO

Blair McHaney is an operational customer experience management (OCEM) expert. He spent two and a half years in Palo Alto, California, as vice president of strategic initiatives for Medallia, an OCEM technology company. McHaney is president of ClubWorks, Medallia's partner specializing in OCEM for the fitness industry, and he is an educator for the Medallia Institute. Operating health clubs in Washington State for more than 30 years, McHaney has a high-level theoretical understanding of how companies build loyalty as well as ground-level operational experience.